Use tools to gauge your retirement needs

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It’s never too early to start figuring out how much money it will take to retire and where that money will come from.

A variety of sophisticated financial calculators — many good ones are available free of charge — take some of the guesswork out of this long-range retirement planning.

Start by gathering key pieces of financial information. Try to be as precise and accurate as you can. No financial calculator or formula from even the most knowledgeable expert can offer an infallible look at the future, but the most basic rule of computer calculation applies here: garbage in, garbage out.

Taking inventory

It really pays to dig up accurate financial data. Look for:

  • Your pretax income. Check your W-2 or on the last pay stub of the year. If you are self-employed, you can pull a report from your accounting software or ask your accountant.
  • An estimate of your Social Security benefits. The Social Security Administration sends out a four-page Social Security Statement to everyone each year shortly before his or her birthday. To receive a copy, call (800) 772-1213 or go online to the Social Security benefits calculators.
  • An estimate of pension income. If you’ve earned a pension from your current or past employer, the human resources department at that company will be able to help you calculate how much you’ll receive. If you have worked for the federal government, try the Federal Ballpark E$timate calculator from the U.S. Office of Personnel Management.
  • Savings in taxable accounts. While this money isn’t necessarily earmarked for retirement, it can be a factor, especially as you get closer to cutting back or leaving work.
  • Savings in tax-advantaged retirement accounts. This includes not only your current 401(k), SEP, IRA or other retirement plan, but also don’t forget retirement savings that you may have left invested in a former employer’s plan.

Next, many calculators will ask some really tough questions. Here are the most common ones and some suggestions for figuring out the best answers.

At what age do you expect to retire? The longer you work, the less money you have to save in order to live well in retirement. For one thing, you’ll earn more Social Security. “Choose to Save,” a program of the Employee Benefit Research Institute, or EBRI, features an interactive Ballpark E$timate calculator that shows how working longer impacts your finances.

What percentage of your current income will you need after retirement? This is the million-dollar question. If you’ve paid off your mortgage and are debt-free, your cost of living may decline 20 percent to 40 percent from what you’re earning now. On the other hand, if you have parents you help support, kids still in college, no retiree health plan, and/or you hope to travel and eat out often, you may need as much as 100 percent to 120 percent of your current income.

What rate of inflation do you expect over the course of retirement? Historically inflation has run about 3 percent, but during the 1970s it exceeded 7 percent, and in the 1980s it averaged 5.55 percent, according to Take a guess.

How much do you expect to make on your investments? Estimating your rate of return is another venture into the realm of the unknown. It depends on your asset allocation, your risk tolerance, and the behavior of the markets. In Bankrate’s story, “Do stocks make sense for the over-50 crowd,” experts offer suggestions about how much to allocate to that often volatile asset class. Our quiz on “What’s your risk tolerance” may help you determine how much volatility you can stomach.

Do you plan to work after you retire? The Social Security Administration spells out its rules for reducing its payout based on how much a worker who is younger than full retirement age earns while he or she collects. After full-retirement age — 66 for most people now close to retirement — there is no penalty. Plus, adding income from even a part-time job can significantly extend how long retirement savings will last.

How long do you expect to live? Longevity is a blessing and a curse for those living in retirement. Try the Wharton School’s longevity quiz for an eye-opening look at how long your money may have to last.

With the necessary information in hand, tinkering with these free calculators can help you assess what it takes to retire.

  • Bankrate’s retirement calculators offer numerous tools to figure out your future needs. The Retirement planner calculator enables you to factor Social Security in the equation.
  • Most major mutual fund firms, such as Vanguard, Fidelity and T. Rowe Price, offer retirement planning tools on their Web sites.
  • calculates the likelihood that your retirement plan will succeed by looking at investment returns since 1871 and analyzing what would have happened if you retired in any given year, determining how often your strategy would have succeeded and how often it would have failed.